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Coeur d’Alene (CDE) is a silver and gold mining
company that we have owned in the past but do not at present.
Like many bullion miners, they seem to be cheap relative to the
NAV of the assets they own. CDE was down quite sharply during the
Summer before rallying strongly starting in August when central
bank reflation started driving up bullion prices. And yet,
spare a thought for CEO Mitch Krebs, because the poor fellow has
barely participated in the recent stock rally. Mitch Krebs owns
74,812 shares according to the 2012 proxy statement, a mere
0.083% of the company. He’s a bystander, barely connected to the
daily swings in the company’s value. In fact his 2011
compensation of $2.4 million was more than the entire value of
his stockholding. How frustrating this must be for Mr. Krebs to
show up for work every day helping to make his owners rich which
working for a (not trivial) salary and bonus.

But Mr. Krebs is actually far smarter than he at first appears.
The proxy statement describes a performance-driven compensation
process which sounds reasonable enough. But rather than being
based on increasing debt-adjusted per share earnings, which
is what shareholders care about, the relevant metrics are
production. His interests are to make CDE bigger, not necessarily
to increase EPS. So in fact, the common equity is there to be
used to make acquisitions, even though surely one of the best
investments CDE could make would be to repurchase its own stock.

Mitch Krebs has made this clear. He recently said they expect to
make an acquisition within the next 12 months. This
will undoubtedly help him achieve some of the production metrics
that drive his compensation, but may not make his shareholders
richer. Perhaps that’s why former CEO Denis Wheeler owns no
shares at all. He’s seen this movie before – in fact, he had a starring role
in it for many years. The best way to make money out of CDE is to
own what they’d like to buy. For our part, we are long the Gold
Miners ETF (GDX), although it’s admittedly a little too big for
CDE to buy.